Supreme Court Holds that the Bayh-Dole Act Does Not Vest Title to Federally-funded Inventions in Universities

June 6, 2011

This morning the Supreme Court issued a decision affirming, 7-2, the Federal Circuit’s 2009 judgment in Board of Trustees of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 583 F.3d 832 (Fed. Cir 2009). Chief Justice Roberts delivered the Court’s opinion, and Justice Breyer filed a dissenting opinion joined by Justice Ginsburg. The case concerns the ownership of inventions in the context of federally-funded research conducted at the nation’s universities, and Stanford posed the following question:

Whether a federal contractor university's statutory right under the Bayh-Dole Act, 35 U.S.C. §§ 200-212, in inventions arising from federally funded research can be terminated unilaterally by an individual inventor through a separate agreement purporting to assign the inventor's rights to a third party.

Board of Trustees of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 131 S. Ct. 502 (2010). The Court held that the Bayh-Dole act does not vest title to federally funded inventions in federal contractors. Slip Op. at 1.

In this dispute, Stanford’s researcher signed an employment contract agreeing to assign rights in future inventions to the university. But, subsequent to that and in connection with learning certain technologies from a third party, this researcher signed an agreement stating that he will assign and does hereby assign to the third party his rights in inventions he devises as a consequence of his work with the third party. Not long thereafter, Stanford filed an application for a patent and obtained from the researcher a written assignment of the inventions claimed in the application. The third party was a predecessor in interest to Roche Molecular Systems, which was sued by Stanford for infringement of the ensuing patent. In defense, Roche asserted that it is a part owner of the subject patent by virtue of the researcher’s signed agreement. The parties did not dispute that the researcher developed the patented inventions as a consequence of his work with the third party. The Federal Circuit agreed with Roche and determined that, under its precedents, the agreement with the third party, intervening the employment contract and the later-executed patent assignment, was controlling. Further, the Federal Circuit concluded that the Bayh-Dole Act did nothing to extinguish the rights conveyed by the researcher to the third party.

Under the U.S. patent laws, the general rule is that exclusive rights in an invention belong to the inventor. Others, such as the inventor’s employer, may acquire an interest in those rights, but they do so typically by (written) contract. Stanford (and the United States government) argued that the general rule does not apply in the context of federally-funded research. Specifically, Stanford argued that the Bayh-Dole act vests title to federally-funded inventions in the inventor’s employer—Stanford, a federal contractor. The Court, however, disagreed and stated that the Bayh-Dole Act is pertinent only when an invention otherwise belongs to the federal contractor:

The Bayh-Dole Act does not confer title to federally funded inventions on contractors or authorize contractors to unilaterally take title to those inventions; it simply assures contractors that they may keep title to whatever it is they already have.

* * * *

Only when an invention belongs to the contractor does the Bayh-Dole Act come into play. The Act’s disposition of rights—like much of the rest of the Bayh-Dole Act—serves to clarify the order of priority of rights between the Federal Government and a federal contractor in a federally funded invention that already belongs to the contractor. Nothing more.

Id. at 11 and 12 (footnote omitted). In a footnote, Court stated that "[b]ecause the Federal Circuit’s interpretation of the relevant assignment agreements is not an issue on which we granted certiorari, we have no occasion to pass on the validity of the lower court’s construction of those agreements." Id. at 5 n.2. Further, the Court’s majority did not comment on the Federal Circuit’s precedents that address expectant interests in future inventions not yet in being. For the time being at least, parties to a technology transfer agreement should understand the differences between "agree to assign" and "hereby assign" when attempting to transfer rights in future inventions not yet in being.

Although unnecessary to its decision, the Court noted that its interpretation of the Bayh-Dole Act is reflected in the common practice among parties operating under the Act:

[U]niversities typically enter into agreements with their employees requiring the assignment to the university of rights in inventions. With an effective assignment, those inventions—if federally funded—become "subject inventions" under the Act, and the statute as a practical matter works pretty much the way Stanford says it should. The only significant difference is that it does so without violence to the basic principle of patent law that inventors own their inventions.

Id. at 15. Accordingly, the Court affirmed the Federal Circuit’s judgment, 7-2.

In dissent, Justice Breyer recounted the objectives underlying the promulgation of the Bayh-Dole Act and stated that the Court’s decision is inconsistent with those objectives. In Justice Breyer’s view "the competing norms governing rights in inventions for which the public has already paid, along with the Bayh-Dole Act’s objectives, suggest a different result." Breyer dissent at 6. To Justice Breyer, the different result is as Stanford asserted: that title to all inventions made by a federal contractor’s employees with the aid of federal funding resides in the federal contractor. Justice Breyer posited that this result is attainable by setting aside the Federal Circuit’s interpretation of the university’s employment contract and the third party’s assignment agreement underlying the dispute and that court’s decisions regarding expectant interests in future inventions not yet in being, or by "ordinarily assuming, and thereby ordinarily requiring, an assignment of patent rights by the federally funded employee to the federally funded employer." Id. at 6-8. Thus, Justice Breyer dissents because he "would vacate the judgment of the Federal Circuit and remand this case to provide the parties with an opportunity to argue these, or related, matters more fully." Id.

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